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XPeng Motors plays a self-rescue card, but it will still take time to get through the winter.

After the sales figures were released early, the underwhelming performance of XPeng's third-quarter financial report should have been within expectations: revenue of 6.82 billion yuan, a month-on-month decrease of 8.2%, and a slightly narrowed loss, still reaching a high of 2.38 billion yuan—but the pain of the product transition period was still very real.

The fourth quarter is equally unpromising. In the business guidance, sales are projected at 20,000-21,000 vehicles, and revenue at 4.8-5.1 billion yuan, continuing a significant decline. However, considering the delivery performance in October and November, XPeng's December sales are finally expected to surpass the benchmark of 10,000 vehicles again.

After the "accident" at the launch event, the new G9 is slowly winning back users. At the third-quarter earnings conference, He Xiaopeng, chairman and CEO of XPeng Motors, stated that the G9 will rank among the top three pure electric SUVs above 300,000 yuan, and will narrow the gap with the leader next year.

Although this was originally the positioning of the G9 flagship product, the sales realization after the incident is still invaluable. The additional information He Xiaopeng provided about new vehicle planning further boosted market confidence.

The next steps are clear: Starting in the first quarter of next year, XPeng will launch three new products. Among them, the new P7 will share some advanced technologies with the G9, including fast charging and intelligent driving; and a mid-size SUV priced between 200,000 and 300,000 yuan will be launched in the middle of the year.

Measured across multiple dimensions, including cumulative deliveries, technology reserves, and brand influence, XPeng remains among the top tier of China's new car-making forces. The unsuccessful launch of the G9 put XPeng in a passive position for a time, but the positive outlook and proactive adjustments have given the market a reassurance:

After the earnings conference, XPeng Motors' US stock price surged by 47%. While this certainly includes market confidence stemming from Guangzhou's relaxation of pandemic prevention policies, it is also clearly inseparable from expectations of XPeng's recovery from its downturn.

Necessary Adjustments

The stronger the market's response to the adjustments, the more urgent XPeng's previous and current situation is.

Before the launch of the G9, the performance of several models on sale was already quite weak. In the third quarter, XPeng sold a total of more than 29,000 vehicles, a significant decrease from the more than 34,000 vehicles in the first and second quarters.

This was still an achievement achieved by XPeng's efforts. According to 36Kr's understanding, as early as the second quarter of this year, XPeng began to boost terminal sales by reducing the final payment, and in July further increased discounts in some regions.

After lowering prices, XPeng secured more sales to a certain extent, but revenue was about 100 million yuan less than market expectations—although the proportion of the higher-priced P7 increased in the third quarter, and the average selling price increased accordingly, it did not reach the market's previous expectations.

Before the launch of a new car, older models often face short-term pressure, which is particularly evident in new car-making forces with smaller product matrices. For example, before Li Auto delivered its new L9 and L8 vehicles, its sales in August also halved to more than 4,500 vehicles. Therefore, XPeng's underperformance during the "transition period" is also normal.

The real problem lies with the G9. Mistakes in product configuration and pricing caused this highly anticipated flagship model to suffer a setback upon launch, failing to quickly fulfill its role. According to XPeng's latest disclosed data, only 623 and 1,546 G9s were delivered in October and November respectively, and XPeng's total deliveries were only 5,101 and 5,811 vehicles, failing to escape the downturn.

This seriously deviated from XPeng's projected trajectory. A supply chain source told 36Kr that XPeng's expectation for the G9 was 8,000-10,000 orders in the first month, but the actual number given to suppliers was only about one-third. Due to insufficient orders in the early stages, the G9 production line was almost suspended. (XPeng Motors previously denied this statement and said: The production line ramp-up was slower in October, and it will catch up in November.)

Within 48 hours of the new car's launch, XPeng quickly adjusted the G9's configuration and price, and simplified the naming of the vehicle versions. This adjustment was timely, but judging from the subsequent market performance, the G9 still missed the opportunity to become an instant hit. In December, three months after its launch, the G9 is only expected to slowly enter its targeted "top three among pure electric SUVs above 300,000 yuan," which is clearly a regret for an ambitious new model equipped with the company's most advanced technology architecture.

However, it was the setbacks with the G9 that gave XPeng the opportunity to adjust its organizational structure.

Deficiencies in product configuration and marketing exposed problems in XPeng's corporate governance, such as the frequently criticized "insufficient involvement of senior management in operations." It is understood that after the reconfiguration, He Xiaopeng organized senior executives to hold internal meetings for several consecutive days to streamline the company's organizational structure.

In mid-October, XPeng internally announced a new organizational structure. The core of the adjustment is that XPeng's core executives, especially He Xiaopeng, will be more involved in the front-line operations. At this earnings conference, He Xiaopeng also specifically stated that he would reduce his involvement in ecological enterprises such as XPeng Heitian and focus on XPeng Motors. In addition, Xia Heng, co-founder and president of XPeng, resigned from the board of directors and will focus on products in the future.

Short-Term Pressure Remains

But as He Xiaopeng said, the adjustment of the organizational structure is for the long term, not the short term. It remains to be seen how much effect this personnel change will have.

Overall, XPeng faces significant pressure this year and even next year. The fourth-quarter delivery guidance is only 20,000 vehicles, a new low for XPeng's full year, and the future performance of the G9 and the life cycle of other models bring more uncertainty to XPeng's future.

One piece of information worth noting is that from November to December, XPeng is still offering final payment discounts of over 10,000 yuan, and also announced a "limited-time price guarantee" for the 2022 national subsidy—that is, as long as the order is placed this year, regardless of when the license plate is obtained, XPeng will cover the difference.

It's the familiar tactic of "trading profit for market share." Lü Xueqing, vice president of finance at XPeng Motors, frankly admitted at the earnings conference that the decline in sales and the launch of the G9 will put pressure on the gross profit margin in the fourth quarter of this year, and the gross profit margin in the first quarter of 2023 will also be affected by the subsidy guarantee.

The relatively low prices of its models and the low gross profit margin have always been a concern for XPeng. Compared with Li Auto and NIO, which have gross profit margins of over 17%, 18%, or even 20%, XPeng's gross profit margin only hovers around 10%. As mentioned above, the high-end flagship model G9 is unlikely to change this situation.

According to Lü Xueqing, the gross profit margin will only increase significantly in the second half of 2023, with the rebound in sales and stabilization or even reduction of battery prices in the second quarter of 2023.

On the other hand, after briefly cutting expenses at the beginning of this year, XPeng is now increasing investment. In the third quarter, XPeng's overall R&D expenses returned to nearly 1.5 billion yuan, several hundred million yuan higher than in the first and second quarters.

This is understandable. In the final stages before the launch of the G9, XPeng must accelerate its efforts in core technologies such as fast charging and autonomous driving. Taking autonomous driving as an example, on September 17, XPeng launched a pilot program in Guangzhou for its City NGP intelligent navigation assisted driving system.

He Xiaopeng stated at the earnings conference that the company will maintain a certain level of R&D investment in the future, focusing on autonomous driving and intelligent cockpits. It is reported that the next-generation full-scenario intelligent assisted driving product, XNGP, is under accelerated development, with plans to launch its main functions in the third quarter of 2023, and City NGP will support at least dozens of cities.

As a trump card, autonomous driving still carries XPeng's highest expectations, but in this fiercely competitive field, competitors are also accelerating their pace. New car-making forces such as NIO, Li Auto, and Zhiji all plan to launch similar functions. Whether XPeng can maintain its lead and expand this single technological advantage into a systematic strategic advantage is a profound challenge for the future.

With no significant improvement in gross profit margin and operating expenses continuing to expand, XPeng has not given the market a clear timetable for profitability. Among its competitors, Li Auto is known for its cost-effectiveness and is the closest to profitability, while NIO, despite spending the most, has given a profit expectation for 2024. However, XPeng offered another dimension of reference: it expects to achieve positive cash flow by 2024, but its competitors have already achieved this.

“The competition in the intelligent electric vehicle industry is a marathon, and I believe that only those who master core technologies and have excellent comprehensive capabilities, and who can achieve large-scale revenue in both hardware and software, will ultimately win in the long run,” said He Xiaopeng. It is conceivable that in this long marathon, it will still take time for XPeng Motors to get ahead and pull away from its competitors. XPeng Motors has played its self-rescue cards, but it will still take time to weather the winter.

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